ed wrote:

- quote -

Victor, rich, and ed,

Thanks for that insight. I see Form 2210 and its Schedule
A1, and how I can use it as a guide to figure out my
quarterlies.

No other way to do this, as I might not sell a share, or I
might unload a bunch, all in the shadow of a high tax
precedent last year.

I think I'm clear on this now. Thanks again.

Paul

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You should determine how much to pay for each installment on
the Annualized Income Method (see form 2210 Schedule AI and
also Publication 505 for greater detail). This is the only
way you will absolutely avoid a penalty because trying to
estimate the full year is a lost cause. You do not have to
pay equal installments

The process is really very simple, but computing your
taxable income for each tax period can be difficult. There
are 2210 tax calculators available to download from the
web, but the big tax programs don't do it on the AI method

ed

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A good way to fill out the estimated tax penalty each
quarter, then pay enough to avoid the penalty. It is forms
2210 and 2210AI in most low end computer tax programs. You
have the choice of the equal payments method or the
annualize-income-so-far method. The second handles the issue
of unpredictable income. However, it may result in higher
early payments if more of your income is in the first five
months of the year. So you may compute both ways the first
methods the first quarter, then choose either (and continue
that for the rest of the year).

In the 2210 forms you are roughly computing your income tax
five times a year- four times for estimates and then the
actual.

One caveat is that the brackets and deductions for 2005 are
not finalized until October. So you use a one year old
form/program for the calculation. Generally this safe,
because most year-to-year changes are for inflation
increases, having you pay slightly more than necessary.

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Paul B." <pb_public[at]operamail.com> wrote:

- quote -

I believe you can pay estimated taxes in unequal amounts
without penalty _if_ you can document your income for each
of the estimated tax periods. There is a form for doing this
- just not sure where right now. Probably the same form
where the penalty is calculated. Before I organized as a C
Corp and was therefore paying estimated taxes on my
consulting income I had a year in which I paid more than was
due, but still owed a penalty because the payments were
unequal - too small at the start of the year. The penalty
was so small I didn't want to bother to document my income
for each estimated tax period.

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Last year I had much higher than usual investment income.
This year I have no way of knowing how things will go.
There's a good possibility that I will see very little
realized capital gains, but then if there's a buy-out or
merger, there could be very heavy realized capital gains.

So here's my problem: because of last year's high income,
I'm set up for potential penalties if I underestimate
estimated tax. Naturally I'd like to keep the estimated tax
payments as low as possible. Can I low-ball the estimates,
and then quickly upgrade them later on if I start seeing
income, without penalty? Or will the IRS want four equal
payments? It's hard to estimate taxes when one hasn't a clue
what's going to be happening.

Thanks,
Paul

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